With Eric Holder taking phone calls from Jamie Dimon to discuss the details of an open investigation into his bank, government officials in closed-door collaboration with Wall Street may come as no surprise. But it is particularly insulting when an agency meant to help homeowners sides with Wall Street against them.
When the city of Richmond, CA announced a plan to help underwater homeowners through a creative use of eminent domain, Wall Street vociferously oppose the measure. They even threatened not to issue future loans in Richmond, despite concerns that such threats amounts to illegal redlining. This is to be predicted: Wall Street has made money off the foreclosure crisis, and stands to lose money as investors in mortgages if loans are written down.
But what came next was very bizarre. The Federal Housing Finance Agency (FHFA)—an agency whose mission is to encourage housing—threatened action against Richmond if they went ahead with their plan. This is peculiar because FHFA was mandated by Congress in 2008 (under the Emergency Economic Stabilization Act) to “implement a plan that seeks to maximize assistance for homeowners.” But so far, the agency had refused to grant any principal writedowns to struggling homeowners despite calls from numerous government officials to do so.
One might imagine that FHFA would welcome Richmond’s plan—it is simply trying to do the very task FHFA has been mandated to do: help homeowners. Instead, FHFA threatened not only to sue—which is their right as owners of securities with mortgages in those areas—but also to stop doing business entirely in areas using the eminent domain tactic to write down mortgages.
There is one more strange twist to FHFA’s threat not to guarantee future loans made in Richmond. Richmond has stated that the loans they intend to target with eminent domain are only those held in private-label mortgage-backed securities: in other words, mortgage-backed securities created by private banks. Fannie Mae and Freddie Mac (who FHFA oversee) do not guarantee these securities. By definition, the only kind of mortgage-backed securities that Fannie and Freddie guarantee are what are called agency securities. These will remain totally unaffected by Richmond’s plan to help homeowners.
So the question remains: why was FHFA siding with Wall Street, and not homeowners? And why are they taking such an aggressive approach in opposing this initiative? To answer, a coalition of community groups (including @CalOrganize, @nychange, @HDefend and @CO_FCResistance) asked a logical question—how closely has FHFA been communicating with Wall Street over this issue?
The coalition of community groups filed a Freedom of Information Act (FOIA) request asking for documents, communications or meetings between FHFA and the financial industry, including:
- Major banks like Wells Fargo, Citigroup, and JPMorgan Chase
- Wall Street trade group SIFMA and the American Bankers Association
- Investment management firms BlackRock and PIMCO.
The FHFA has yet to respond to the coalition’s FOIA request. So the ACLU and the Center for Popular Democracy stepped in. They have filed a lawsuit asking a judge to order FHFA to release the information requested by the FOIAs. Let’s hope they prevail—because with no horse in this race, FHFA continues to take Wall Street’s position. The public deserves to know if there are backroom conversations happening that explain why.